Shares of America's largest virtual care provider, Teladoc Health (TDOC 3.16%), bounded higher following its announcement of second-quarter earnings results on July 25. The virtual care provider doesn't have earnings to report yet, but the enormous losses it reported last year shrank to a level that the market considers palatable.

Is Teladoc Health a buy now that it's losing millions instead of billions? Let's weigh some of the reasons bullish investors are buying the stock against key bear arguments to see if it deserves a place in your portfolio.

Reasons to buy Teladoc Health stock now

Americans spent $865 billion on physician and clinical services in 2021, a 5.6% gain compared to the previous year. The Inflation Reduction Act, signed last year, will significantly lower spending on pharmaceuticals, but the huge physician and clinical services budget will most likely continue marching higher.

Since the passage of the Affordable Care Act in 2010, health systems are increasingly likely to earn more by producing positive long-term patient outcomes than they used to earn by simply performing as many services as possible. With its focus on whole-person virtual care, using Teladoc looks like a relatively inexpensive way to improve long-term outcomes.

Teladoc Health lost a stunning $13.7 billion last year, but recent losses are far easier to manage. During the first six months of 2023, the company lost $134 million according to generally accepted accounting principles (GAAP).

Two people, one in wheelchair, looking at laptop in kitchen.

Image source: Getty Images.

Teladoc appears to be approaching sustainable profitability. In Q2, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 54% year over year to $72 million.

The huge losses Teladoc reported last year consisted mostly of writedowns on the $18.5 billion acquisition of Livongo's chronic care operation in 2020. The acquisition didn't work out the way management intended, but the chronic care operation hasn't disappeared, either. Today, more than a third of the company's chronic care members are enrolled in multiple programs. Those chronic care programs are a key differentiator between Teladoc Health and a slew of related competitors offering virtual care services.

Teladoc also owns BetterHelp, a leading virtual mental health services business marketed directly to consumers. Q2 revenue from BetterHelp surged 18% year over year to $292 million.

Reasons to remain cautious

I'm not a buyer of this stock because its integrated care business isn't performing well enough to suggest its whole-person approach is driving demand.

Late last year, Teladoc separated its operating segments into BetterHelp, and Integrated Care, a suite of services distributed to businesses. From the fourth quarter of 2022 to the second quarter of 2023, the Integrated Care segment revenue rose less than 1% to $360.1 million.

Chart showing Teladoc's sales and marketing expense, revenue, and total operating expenses all rising since early 2021.

TDOC Sales and Marketing Expense (TTM) data by YCharts

Zooming out to a longer time frame is even less encouraging. Total trailing 12-month sales are up 192% over the past three years. Unfortunately, sales, marketing, and other operating expenses rose much faster.

Keep looking

The commoditization of telehealth tools has had me nervous about Teladoc's investing thesis ever since a physician rang my telephone number with Doximity (DOCS 0.29%) Dialer a couple of years ago. The Dialer application from Doximity didn't begin supporting video calls until 2020, but it's already extremely popular. Doximity's telehealth tools were used by 380,000 unique healthcare providers during the three-month period that ended on March 31.

When Teladoc's sales significantly outpace operating expenses, I'll gladly change my tune. Until then, it's probably best to assume its approach to whole-person health isn't a strong enough selling point to overcome competition from a long and growing list of virtual care service providers.